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Monthly Archives: August 2013

Also known as selective invoice, spot invoice or one off invoice discounting, single invoice discounting is a form of short term borrowing that is often used to improve a company’s cash flows or increase working capital. It allows an entity to draw money against sales invoices even before its customers have actually paid what they are due. In here, a company loans a certain percentage of the value of its invoice from a third party or financing institution. Do take note that single invoice discounting is not the same as single invoice factoring. The former uses the invoice as collateral to borrow money while the latter involves selling of the receivables. Although their effects and purposes may be somewhat similar, these two are completely different and should not be interchanged.

This type of financing is best suited for companies with seasonal trading patterns, those who trade with just a single customer and also those who prefer or need to finance against a single customer only.

It is also fairly cheaper as compared to traditional discounting as no monthly fees are involved. They too are much lower as there are no annual administration fees and only one fee per invoice transacted is charged. At the same time, this transaction can be made confidential so that your clients and customers as well as suppliers will remain unaware that you are borrowing resources against the invoices even before they have been paid. The funds that you acquire here will not only increase working capital and cash flows but it will also make up for the lack of resources needed for very important projects and related expenditures. Also, it is possible for you to get hold of the cash in less than forty eight hours. And since this only deal with a single invoice, no lengthy contracts are involved so companies would not be tied up in these contracts for far longer than they plan to.

As there are advantages, there too are drawbacks in single invoice discounting. For one, it can mean a reduction in your profit margin. Also when compared to overdrafts and bank loans, they can be more costly. Second, borrowings can be associated with entities that are in financial distress. Since you are borrowing and using your invoices as collateral, others may perceive it as a sign that you are encountering problems. Ultimately, suppliers may be hesitant to extend credit to you too. Third, companies who enjoy the increase in working capital may become too dependent. This should not be the case as you must remember that you are still borrowing and interests have to be paid.

Factoring is known to provide an answer to companies who have slow paying customers and those who need a boost in their working capital. Others even see it as a means to protect themselves against noncollectable accounts and losses from bad debts. At present there are notable UK factoring companies like workingcapitalpartners.co.uk who provide their services to the market. They offer many different services and types of factoring. These variations occur as different companies may provide for different rates, terms and conditions. Rest assured these are always communicated to their clients as transparency is one thing that keeps this business growing.

First and foremost let us describe the process. The owner of the receivables or invoice sells these to a factor who in turn gives a percentage of the value in advance. The factor will chase after and collect the payments from the customers and once the whole amount has been fully collected, the balance left of the invoice’s value will then be given by the factor to the seller. This will then be less any fees or commission which both parties have agreed upon. So what services do these UK factoring companies offer? Here’s a little info for all of you.

For one, there is this thing we call Recourse. Here credit protection is not part of the agreement. In here you are responsible for buying back the invoices which have not been paid by your customers within the agreed upon period. Even if the factor has purchased the invoices from you and given you a percentage in advance of their values, you assume the risk of uncollectability. Fear not though as factors help you out to avoid having these buy backs. As part of their services they will check up on your accounts and customers to see their ability to pay. Also they can take care of managing your receivables alongside your own in house team.

If however you do not want to assume any risk of uncollected amounts you may opt for Non Recourse. They will completely assume the risk and thus relieve you from any bad debts.

There is also what we call the Modified Recourse where the factor carries receivable insurance for amounts uncollected due to inability to pay for financial reason. For other causes other than that the company must buy back the invoices.

In the event that you don’t want to subject all your receivables to a factor but would prefer a one time transaction, UK factoring companies may provide you with spot or selective factoring. This will allow you to choose which receivable to use and when to use it.